A research report by Gulf Finance House raises the possibility of Kuwait going back to a dollar peg because of extreme volatility in the FX markets and to unfreeze its money markets. "Based on conversations with treasurers, the presence of FX risk premium is effectively imposing a barrier against the flow of funds from cheaper sources in the GCC to Kuwaiti banks," says the report. "Accordingly, dinar interbank rates remain the highest in the region, even after the recent moves of the Central Bank of Kuwait to activate repo facilities of 1% overnight and 3% one-month." Kuwait adopted a basket peg in May 2007 to contain inflationary pressures. The other GCC countries have their currencies pegged to the dollar.
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